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Platforms in the spotlight

  • By Jason Stockwell

This summer, global research firm Investment Trends released its 2018 Adviser Technology and Business Report, an in-depth study of financial advisers in the UK that examines how they run their businesses and how their technology and platform needs are evolving. Kicking off our special focus on platforms this month, Sue Whitbread talks to Recep Peker, Research Director at Investment Trends, about the study and some of the important trends it has uncovered


The report, now in its ninth year, is based on a survey of 963 financial advisers concluded in May 2018. This year’s study highlights a number of important trends:

  • Financial advisers are battling against the tide of regulatory changes
  • Advisers seek, and are willing to pay for, external support to grow their business
  • Standard Life Wrap, AJ Bell Investcentre and Aegon Retirement Choices have extended adviser relationships at pace
  • Commercial advice and back-office software applications are gaining popularity as advisers place greater emphasis on financial plan production capabilities

SW: Recep, before we talk about platforms specifically, can you summarise what your research tells us about how adviser businesses are faring overall at the moment?

RP: They are doing pretty well from what we can see. Adviser business profitability is growing with 74% of advisers say that their businesses are more profitable than they were last year. This is a notable trend which has followed the reforms to pensions and the focus on developing long term relationships with clients – a very positive development.

However, advisers have not been immune to the regulatory changes and requirements sweeping through the industry. Our research shows that regulatory change and uncertainty is now the top challenge faced by advisers (59% cite this, up from 38% last year), surpassing compliance burden (53%, steady).

Some providers have been active in supporting and helping educate advisers about upcoming reforms and their impact on their business.

We asked advisers which providers have been the most effective in helping them prepare for recent and upcoming regulatory changes. Currently, 41% are unable to nominate any single provider. Among the rest, Old Mutual leads, while Prudential and Standard Life round out the top three most nominated providers.

For providers, the message is clear. Being properly attuned to advisers’ support needs is very important and will continue to be so.

One interesting thing which emerged from our study is that advisers are looking for external help to help them with the challenges of compliance and regulatory change. These are areas where 80% of advisers are saying they’d be prepared to pay for help. If your readers are feeling these pressures then we can reassure them that they’re not on their own and that most advisers feel the same way.

We were pleased to see that advisers remain optimistic about the future. 58% are focused on growing active client numbers – although this is skewed towards the younger adviser. If we drill down a bit, on average and overall, the target number of clients that advisers ideally wish to have is 127. However, the average adviser has 109 clients.

I think it’s quite interesting to do some maths around this point as it raises some questions. With around 25,000 advisers in the UK, if we consider each one wanting to reach those additional clients, then out of a UK population of around 60 million, this would mean that only 3.2 million people would be actively advised. So what about the broader market? Who would advise those? Such questions are putting pressure on advisers to be more efficient. That pressure feeds through to the platforms they use and the technology they implement within their business to enable them to develop effective client propositions.

Of course, the other thing it puts pressure on is the client engagement process and how to demonstrate the value added.

SW: When it comes to advisers’ use of platforms, what were the main things that your study tells us?

RP: As we can see from the chart (see fig 1) platforms as a whole get 73% of all new client money inflows which advisers generate. This figure used to be much lower but since 2011 it’s been at or around this level. This shows us that platform business is very meaningful for advisers, as it represents such a big percentage. Looking ahead, advisers tell us that they see their use of platforms increasing. This may perhaps be in anticipation of platforms developing their pension proposition further and developing their suitability for different types of clients still further.

The average adviser now uses 2.4 platforms each – up from 2.1 last year. Our data showed that only 14% use just one platform, 50% use two and the balance use more than two. Even though that has increased, advisers’ use of platforms is very much on a one plus one basis. There’s the main platform which tends to get around 75% of their client business – then their plus one is for the rest.

When it comes to which providers they choose, more advisers are saying they are using Standard Life/AJ Bell/ Aegon Retirement Choices. Also more specialists, such as James Hay for example, are seeing large numbers of advisers placing new business with them.

The beauty of the platforms market is that it is highly competitive. The majority of providers are well attuned to advisers needs and they compete quite aggressively for business. They know that for advisers it is relatively easy to stop placing business with one platform and to start using another.

This year, 32% of advisers say that they have stopped using at least one platform for new client inflows over the last 12 months. For most of the last five years the average was about 25% but 32% is high – showing a large amount of switches. There are a number of reasons for this – all showing the importance for platforms to stay on top of advisers’ needs and to acknowledge how those needs are evolving. From a provider’s perspective, if your support proposition doesn’t align with advisers needs it’s quite easy to lose satisfaction so switching goes up. More positively, those platforms which really deliver on advisers’ support needs can increase satisfaction and the amount of business they generate as a result.

SW: Looking ahead, are many advisers intending to look to use a new platform in next 12 months?

RP: Our data shows that the proportion of advisers who are looking to do so has increased from 19% in 2017 to 24% in 2018 as we can see in Fig. 2.It’s fantastic for advisers as it puts pressure on providers to support them well although it must be said that platforms do a good job there mostly.

When it comes to satisfaction ratings for platform providers, the highest three are Transact, Parmenion and Old Mutual Wealth – and in that order. Comparing this to what we see in other countries, it’s hard to find these levels of satisfaction. You have to be very good – very active – to reach these levels.

SW: In relation to their use of platforms, what are the main factors which affect platform selection? Are there particular areas where advisers say they want improvements?
RP: When we asked advisers what they want, nearly 90% cite areas which need improvement as being around core activities like reporting, better servicing support, more tools etc.

The share of main platform remains fairly consistent but what comes through is that there are different types of advisers who look for different things from a provider – for example, for some low cost is a priority. For those, the likes of Aviva, AJBell, Aegon etc. will be winners. However, other advisers want all-in-one, everything together for example, with Standard Life or Transact. Then there’s a new group of advisers who are using newer model portfolio driven plaftorms like Parmenion where the importance is about investment administration efficiency. We haven’t drilled deeply into this but I wonder whether advisers are selecting them because they take care of the investment side of the process and therefore the adviser can fully focus on the financial and lifestyle goals of the client – ie on the financial planning process itself. This is the model we see in Australia, which is where I am based. More and more advisers are distancing themselves from being stock pickers/investment selectors to becoming asset allocators – or even going beyond it and becoming true goals-orientated advisers.

As the industry matures and there is greater regulatory clarity, the technology and processes advisers use will continue to evolve. The path the Australian financial planning profession is taking is all about focusing on client relationships – helping them to achieve their goals and to show how they are progressing towards their goals. It is so important for clients to know where they are on that journey. Compared to this, for the client it is clear that investment performance is not as important. Does it really matter if the portfolio has achieved 4% or 8% returns etc. as long as they’re on track to achieving their goals? That’s what gives them real peace of mind.

SW: Is cost a critical factor when it comes to platform choice or it is more about service?

It all depends on the adviser. Some are prepared to accept higher costs as service and features are more important to them. Other platforms attract advisers where they want the lower cost and will sacrifice a degree of service and features.

Some advisers have still got a way to go in articulating their value proposition effectively – and charging fees. In such instances lower platform costs is more important. In my view, as the use of client engagement tools such as cash flow modelling grows, it will make it easier for advisers to demonstrate the considerable value they add for clients and hence the underlying fees won’t necessarily be quite as important.

It’s important that we recognise that all advisers are different. The market is diverse, which allows for the development of different propositions over the years as the profession develops into one which gains increasingly strong client support and business success. The use of platforms within financial planning businesses has become embedded as an integral part of the planning process and in helping to deliver a service of real value for clients.

Fig 1. The average proportion of new client money captured by platforms edged up from 71% in 2017 to 73%. Advisers expect this to grow to 77% in the medium term:

Fig 2. Platform switching levels appear set to remain elevated over the next 12 months, with a quarter intending to look for new platforms:

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